The mental meanderings of a dedicated amateur investor and speculator.

Saturday, December 8, 2012

The cost of healthcare in U.S.

I apparently have too much time on my hands. I don't know how this got started but I spent most of the day trying to figure out how much the cost was for my health insurance plan. And this was the result.

Health care costs over a lifetime

According to a study by Health Services Research (HSR) here:http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/The average cost over a lifetime for an American using year 2000 US dollars was $316,579. This includes medical, dental, and vision, as well as nursing home and hospice type care. (All health care costs)

According to the US Census bureau the median wage in year 2000 was $41994 ($42000)I calculate a working lifetime as those years from age 18 to age 65. Total 47 years.

Dividing the total lifetime healthcare cost by the number of working years.

$316579/47years = $6735/yr.

$6735 represents 16% of the year 2000 median wage.

If individual health care costs increase at the rate of inflation and if median income increases at the rate of inflation then a person would be able to "save" enough for a lifetime of health costs by contributing 16% of his wages to a health cost pool. (insurance plan)

Some would contribute more actual dollars and some would contribute less. Just as some will use more health dollars and some will use less.

I researched what my employer and myself contribute to my present health insurance. If I add my employers contribution for health insurance to my gross wages then the cost of health insurance is 12% of total compensation. Plus the 3% we presently pay for Medicare tax equals 15%.

However, my insurance is only available up to age 65 if I continue to work. Then I go on the government plan. Medicare Part A is free at this time, Part B and C at present will have a premium of approx. $130.

The average Social Security payment is now $1230/ mo. So the above Medicare premium represents 10.5% of SS income. Almost the 11% I am paying now. (Iwillhave more than SS:)

According to the HSR study, the cost of healthcare by age per year:The cost for a 40 y/o is $2601/yr.The cost for a 65 y/o is $10,245.The cost for a 85 y/o is $17,071.

As you can see and as we would expect the cost rises dramatically in our later years. Yet I am paying 12% of my potential income for private insurance now that will dump me when I get to age 65.(And this is a subsidised cost, it is paid in pretax dollars by myself and my employer) And I am paying 3% now for Medicare, the insurance that will be expected to cover the bulk of my lifetime health care cost when I am old. So the bulk of the money that I am contributing to my healthcare costs is going to private insurance that will not be around for me when I incur the vast majority of the costs of healthcare.Currently Medicare enrollees pay about $130 a month for Parts B & D.

Medicare currently pays only about 75% of medical costs for enrollees. The HRS study is talking about all costs for everybody. The AVERAGE COST for a lifetime.

These are averages. This means that if health care costs were covered by WORKING PEOPLE ONLY it would require 16% of income going to health coverage during working years to pay for healthcare costs. No deductibles. No age limits. As it is the money paid into the private healthcare insurance scheme is paying for coverage that is, for the most part not used by the generally healthier workers. But a significant cost of health insurance is due to cost of providing care to the uninsured. And frankly I'm in favor of sin taxes going toward heath care expenses. Alcohol, tobacco and even firearms could be taxed toward the cost of healthcare. As could sugar.

The bottom line is that the cost of healthcare for a lifetime could be paid for by the equivalent of 16% of income during the working years. During that time and after in retirement there would be no additional cost. I can hear the rich complaining now about the dollar cost of the 16%. But imagine the flexibility provided to the workforce by being able to change jobs without worrying about health insurance. Or going to school and retraining. I imagine there would be upward pressure on wages due to that flexibility as people exercise their right to change jobs...

I suspect that the cost of healthcare would come down with a single payer due to billing simplification and limits to compensation. And how much of present day insurance premiums are the result of just the fear of going broke without insurance. Prices go up and people still demand the coverage. And as prices go up insurance becomes even more of a necessity. What is the price of lifesaving medicine? Isn't that duress? This is part of the self-reinforcing mechanism of increased medical costs.I notice that on my latest pay statement that my total payroll tax comes to 18.2% of gross: Medicare is a miniscule 1.38%. Social Security is 4%. Federal tax is 7.8%. State tax 5%. Workers comp is 0.06%. (2 deductions, and as a percent of GROSS income. And I should be in the 25% bracket) Think Bush tax cuts. And then there is the 12 % for medical insurance.

I think that my place of employment is on the generous side. I suspect that they pay a larger portion of the total cost than most. They are part of the problem, after all....

Can you see the political problems with asking a minimum wage worker to pay 16%?Or asking a multi-millionaire to pay a straight 16%?

Is it any wonder that the Federal government is going broke? Would I pay another 4% for peace of mind? And no deductibles. And vision and dental after retirement. YOU BET I WOULD! I can't believe it actually works out this way. But I've been at this all day and that is what I keep coming up with.

About Me

I am married to a wonderful woman, have an equally wonderful daughter and two grandaughters.
My passion for the last 15 years has been speculating is the financial markets. I got started when that great salesman, Ken Roberts hooked me on commodity trading. After running my first trading account into the ground in short order using his techniques, I set about learning how to do the exact opposite. The next futures trading account lasted longer, but went bust also. I didn't realize at the time that I was trying the toughest game around. The learning curve was steep, but it was probably a cheap education. I watched the markets daily, trying to manage my 401K, with mixed success. After a few years, during which I built my own home, I got together a trading account. A couple up and down years and then things started to "click".
Trading is mostly psychological. Fighting against your own instincts. But I have learned to trust myself. I keep an eye on the macro picture while I trade the short term. This blog will be mostly macro observations but I may fall victim to the impulse to point out some trades, if they seem instructive.